OT:RR:CTF:VS H330207 AMW
Michelle Schulz, Esq.
Schulz Trade Law PLLC
4131 North Central Expressway
Suite 900
Dallas, TX 75204
RE: Method of appraisement for intracompany transfers of company-owned material
Dear Ms. Schulz:
This is in response to your correspondence, dated January 26, 2023, requesting a binding
ruling on behalf of your client, [ ] (“the Carrier”) regarding the method of
appraisement for the importation of “company-owned materials” (“COMAT”) to be imported to
the United States.
You have requested confidential treatment for certain information contained in your
submission submission and in the file. Pursuant to 19 CFR§ 177.2(b)(7), the identified
information has been bracketed and will be redacted in the public version of this ruling. All
attachments to the ruling request will also be considered confidential.
FACTS:
The facts are based on your January 26, 2023, ruling request as well as follow-up
information submitted to this office on July 14, 2023, March 13, 2024, and December 12, 2024.
In addition, a meeting was held between U.S. Customs and Border Protection (“CBP”) and the
Carrier on December 11, 2024. The Carrier requests a ruling regarding its proposed use of what
is described as a [ ] (“average unit price”) methodology to calculate the customs
valuation of imported COMAT.
The subject COMAT may include the following product types: aircraft parts; engine
parts; interior aircraft parts, such as flight computers, communication units and panels, and
navigational displays; ground support equipment; calibration apparatuses; shop consumables;
and tools for aircraft maintenance. In addition, the COMAT will be imported in one of two
ways: (1) intracompany transfers from one of the airline’s international facilities to a U.S.-based
facility, or (2) items repaired abroad and returned to the United States. In both instances, the
COMAT are incorporated into the Carrier’s aircraft or are otherwise dedicated to the airline’s
internal use. The subject COMAT includes only merchandise that is already part of the airline’s
inventory and is not purchased for importation nor is the merchandise sold after importation.
The subject COMAT involves items that are initially purchased via arm’s-length,
thirdparty transactions. After purchase, each item is entered into the Carrier’s [“ ”] system
(the
“inventory module”), which is the inventory management module within the Carrier’s Enterprise
Resource Management system. Items are grouped in the inventory module based on their
manufacturing and engineering (“M&E”) part number, which accounts for the item’s
manufacturer, aircraft fleet type, Air Transport Association (“ATA”) code, and whether the item
is tooling, expendable, repairable, tracking, or rotable.
For each item, the inventory module calculates an average unit price, which the Carrier
proposes to utilize as the customs valuation. To obtain the average unit price, the inventory
module adds the purchase price of each item to the total value of the same items already in the
Carrier’s inventory. The inventory module then divides the sum by the new, total quantity of
items in stock to calculate an updated average unit price. Your request explains that the average
unit price for each item incorporates the price paid for items in both new and refurbished
condition. The average unit price is based on a weighted average that considers the pre-purchase
and purchase value of the subject COMAT. As an illustration, the Carrier provided an exemplary
spreadsheet showing the average unit price calculations utilized for five COMAT parts in the
company’s inventory. The Carrier also provided a summary of the calculations used, stating:
[For one line item], the total value (QTY 84 x [average unit price] $1,680.75) of the parts
in inventory before the purchase was $141,183.00. The total value of the new purchase
(QTY 49 x $1,710.00) was $83,790.00. [The inventory module] calculated the new
[average unit price] by taking the sum of the pre-purchase and purchase values,
$224,973.00, and dividing it by the new total on hand quantity, 133. The new [average
unit price] was $1,691.52. If [the inventory module] had used a straight average formula,
without regard for quantity, the [average unit price] would have been the average of the
old [average unit price] ($1,680.75) and the new purchase price ($1,710.00), or
$1,695.37.
The Carrier has further clarified that the inventory module tracks items on a perpetual
inventory basis, which is a continuous accounting practice that records inventory changes in
real-time. In doing so, the average unit price factors in the purchase price for each item in the
Carrier’s inventory. If the quantity of an item in inventory goes to zero, the average unit price
will “restart” with a new purchase. In addition, the Carrier has also clarified that it is not
possible to segregate new and refurbished items. Nevertheless, the Carrier has also clarified that,
in theory, the average unit price might incorporate the purchase price of items purchased in 2010,
2000, or even 1990 if such items remain in inventory. In the exemplary spreadsheet, the oldest
item in inventory was entered into inventory on December 3, 2014. Finally, the average unit
price calculation does not include adjustments for depreciation, inflation, the condition of rotable
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or repairable items, cost of repair, or any change in value for items returned to the Carrier’s
inventory after repair.
ISSUE:
Whether the Carrier’s proposed use of a system average unit price is an acceptable
method of appraisal for imports of company-owned material?
LAW AND ANALYSIS:
Merchandise imported into the United States is appraised in accordance with section 402
of the Tariff Act of 1930, as amended by the Trade Agreements Act of 1979 (“TAA”), 19 U.S.C.
§ 1401a. The preferred method of appraisement is transaction value, which is defined as the
“price actually paid or payable for merchandise when sold for exportation to the United States,”
plus five statutorily enumerated additions. 19 U.S.C. § 1401a(b)(1). When transaction value is
not available as an appraisement method, such as in this case where the merchandise is not
subject to a sale for export to the United States, the remaining methods of appraisement set forth
in 19 U.S.C. § 1401a must be considered. The alternative methods of appraisement, in order of
precedence, are: the transaction value of identical or similar merchandise (19 U.S.C. §
1401a(c)); deductive value (19 U.S.C. § 1401a(d)); computed value (19 U.S.C. § 1401a(e)); and
the “fallback” method (19 U.S.C. § 1401a(f)).
Due to the nature of the merchandise at issue, the methods of appraisement found in 19
U.S.C. § 1401a(b), (c), (d), and (e) are not available. Transaction value under 19 U.S.C. §
1401a(b) is not available because the internal transfers of COMAT are not subject to a sale
between parties. In addition, the transaction value of identical or similar merchandise pursuant to
19 U.S.C. § 1401a(c) is not available because the Carrier does not have access to the transaction
value of merchandise at the same commercial level and in substantially the same quantity as the
subject COMAT. As explained in a supplemental submission, the COMAT imports may include
a quantity of a specific part that can vary in use, history of repair, and age. Next, deductive value
pursuant to 19 U.S.C. § 1401a(d) is not available because there is no subsequent sale of the
COMAT in the United States from which to deduct the required elements. Finally, computed
value pursuant to 19 U.S.C. § 1401a(e) is not available because the Carrier does not have access
or insight to the manufacturing costs associated with the subject COMAT.
Based on the above, we agree with the Carrier that the proper method of appraisement in
this scenario is the fallback method. This method is set forth in 19 U.S.C. § 1401a(f) and allows
for merchandise to be appraised on the basis of a value derived from one of the methods set forth
in 19 U.S.C. § 1401a(b) through 1401a(e), reasonably adjusted to the extent necessary to arrive
at a value. However, certain limitations exist under this method. For example, merchandise may
not be appraised on the basis of the price in the domestic market of the country of export, the
selling price in the United States of merchandise produced in the U.S., minimum values, or
arbitrary or fictitious values. 19 U.S.C. § 1401a(f); 19 CFR § 152.108.
In applying the fallback methodology, the Carrier argues that its proposed average unit
price is an acceptable adjustment of the transaction valuation of identical or similar merchandise
as provided for in 19 U.S.C. § 1401a(c), which provides as follows:
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(c)TRANSACTION VALUE OF IDENTICAL MERCHANDISE AND SIMILAR MERCHANDISE
(1) The transaction value of identical merchandise, or of similar merchandise, is
the transaction value (acceptable as the appraised value for purposes of this chapter
under subsection (b) but adjusted under paragraph (2) of this subsection) of imported
merchandise that is—
(A) with respect to the merchandise being appraised, either identical
merchandise or similar merchandise, as the case may be; and
(B) exported to the United States at or about the time that the merchandise
being appraised is exported to the United States.
(2) Transaction values determined under this subsection shall be based on sales of
identical merchandise or similar merchandise, as the case may be, at the same
commercial level and in substantially the same quantity as the sales of the merchandise
being appraised. If no such sale is found, sales of identical merchandise or similar
merchandise at either a different commercial level or in different quantities, or both,
shall be used, but adjusted to take account of any such difference. Any adjustment
made under this paragraph shall be based on sufficient information. If in applying this
paragraph with respect to any imported merchandise, two or more transaction values
for identical merchandise, or for similar merchandise, are determined, such imported
merchandise shall be appraised on the basis of the lower or lowest of such values.
In addition, Section 152.107 of the CBP regulations (19 CFR § 152.107) provides, in
relevant part:
(a) Reasonable adjustments. If the value of imported merchandise cannot be determined or
otherwise used for the purposes of this subpart, the imported merchandise will be appraised on
the basis of a value derived from the methods set forth in §§ 152.103 through 152.106, reasonably
adjusted to the extent necessary to arrive at a value. Only information available in the United
States will be used.
(b) Identical merchandise or similar merchandise. The requirement that identical
merchandise, or similar merchandise, should be exported at or about the same time of exportation
as the merchandise being appraised may be interpreted flexibly. Identical merchandise in any
country other than the country of exportation or production of the merchandise being appraised
may be the basis for customs valuation. Customs values of identical merchandise, or similar
merchandise, already determined on the basis of deductive value or computed value may be used.
In this matter, we consider whether the Carrier’s proposed average unit price, which
involves a weighted average for each item that factors in the value of all similar or identical
items in stock, represents a reasonable application of the requirement that the value of imported
merchandise be based on the transaction value of identical or similar merchandise exported “at or
about the same time.” In Headquarters Ruling (“HQ”) HQ 546217, dated April 8, 1998, CBP
observed that “at or about the same time” should cover a time period as close to the date of
exportation as possible, within which commercial practices and market conditions affecting the
price remain the same. CBP also noted that these types of determinations may vary between
different kinds of goods and the circumstances unique to the particular merchandise and industry
at issue. Regarding the imported asparagus subject to that ruling, CBP concluded that “about”
the time of exportation is a period of one week before or after the date of exportation (a total of
14 days). CBP further concluded this period is presumptively appropriate for perishable produce
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unless overcome by evidence of market or production conditions that warrant a shorter or longer
time period.
In HQ H257520, dated January 16, 2015, CBP considered whether the fallback
application of the transaction value of identical or similar merchandise under 19 U.S.C. §
1401a(c) was appropriate for imported dehydrated garlic granules. CBP determined that
dehydrated garlic granules exported on May 15, 2012, were not exported “at or about the same
time” as identical granules exported on July 31, 2012. Nevertheless, CBP permitted the use of
the May 15, 2012, transaction valuation under a fallback application of 19 U.S.C. § 1401a(c). In
doing so, CBP observed “as a verified dehydrated granules entry within reasonable proximity to
the entry in question, using this previously accepted value is a reasonable adjustment.”
Furthermore, the Carrier asserts that the proposed average unit price is analogous to the
method of valuation reviewed in HQ H019722, dated March 21, 2008. In that matter, CBP
considered an airline’s proposed use of an averaging methodology to appraise imported material
already in its inventory (e.g., rotables, repair materials, expendables, miscellaneous supplies).
The airline proposed basing the valuation of the merchandise on a “fresh start” methodology in
which the airline engaged valuation experts to provide the fair market value for equipment, parts
inventory, and other intangible and tangible property in its inventory. Each part line item older
than approximately two years was multiplied by an inflationary price index, and each item was
also reduced by economic depreciation factors based on the fleet type, normal life of the fleet
type, average age of each fleet, the type of part, and the remaining service life. Once the initial
“fresh start” revaluation was completed, the company proposed to use a “rolling weighted
average” methodology to value the merchandise going forward, which would incorporate both
the recalculated value of items in inventory as well as the value of future purchases. CBP agreed
that the airline’s proposed methodology was acceptable because it was based on a fair market
value assessment that considered several factors, including adjustments for depreciation and the
cost of repairs.
There are significant differences between the Carrier’s proposed average unit price and
the rulings discussed above. As noted in HQ 546217, the term “at or about the same time”
should cover a period in which commercial practices and market conditions that might affect the
price remain the same. In extending this logic in HQ H257250, CBP determined that dehydrated
garlic granules exported approximately two and a half months before the merchandise subject to
that determination were not exported “at or about the same time,” but were nevertheless exported
close enough in time to represent a “reasonable adjustment.” Finally, in HQ H019722, although
CBP did not specifically consider whether the use of a rolling average initially based on
priceadjusted inventory represented a flexible application of the term “at or about the same
time,” that ruling nevertheless involved a situation in which all merchandise older than
approximately two years had been revalued to account for inflation, depreciation, and repair
costs. In addition, future imports would be based on a time-limited rolling average. In contrast,
the Carrier’s proposed average unit price involves a weighted average that would include all
items in inventory, including those purchased a decade or more in the past. The Carrier has
further clarified that, in theory, merchandise purchased in 2000 or even 1990 would be factored
into the average unit price valuation should such items remain in the company’s inventory. And
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unlike HQ H019722, the Carrier’s average unit price makes no adjustments for inflation,
depreciation, or repair costs.
Based on the foregoing, we determine that the Carrier’s proposed average unit price is
likely to undervalue imported COMAT and is not a reasonable or flexible application of 19
U.S.C. § 1401a(c), which provides that importers may utilize the transaction value of identical or
similar merchandise exported “at or about the same time” as the merchandise being valued.
Nevertheless, appraisal of COMAT under a fallback application of the transaction value of
identical or similar merchandise may be appropriate if the Carrier makes reasonable adjustments
to consider the valuation of merchandise exported at or about the same time as the subject
COMAT. For instance, in line with the timeframe utilized in HQ H019722, the Carrier might
consider narrowing its COMAT appraisal to a weighted average that incorporates all products of
a given class purchased within the prior two years. Alternatively, should the Carrier prefer to
incorporate into its COMAT average those items in its inventory that are older than two years, it
might consider calculating the current fair market value for such items and utilizing a rolling
average for future valuation calculations.
HOLDING:
In accordance with the above analysis, we find that appraising the imported COMAT
under the fallback method, using the modified transaction value of identical or similar
merchandise as calculated by the proposed average unit price, is not an acceptable method of
valuation pursuant to 19 U.S.C. § 1401a. Nevertheless, appraisal of COMAT under the fallback
application of the transaction value of identical or similar merchandise may be appropriate if the
Carrier makes reasonable adjustments to consider the valuation of merchandise exported at or
about the same time as the subject COMAT.
Please note that 19 C.F.R. § 177.9(b)(1) provides that “[e]ach ruling letter is issued on the
assumption that all of the information furnished in connection with the ruling request and
incorporated in the ruling letter, either directly, by reference, or by implication, is accurate and
complete in every material respect. The application of a ruling letter by a Customs Service field
office to the transaction to which it is purported to relate is subject to the verification of the facts
incorporated in the ruling letter, a comparison of the transaction described therein to the actual
transaction, and the satisfaction of any conditions on which the ruling was based.”
Sincerely,
Monika R. Brenner, Chief
Valuation and Special Programs Branch
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